Insurance Premium Growth Driven by Costly Distribution, Not Efficiency: RBI Report

Moneylife Digital Team 02 January 2026

Personal Finance

Reserve Bank of India (RBI) has raised concerns over the insurance sector’s growing dependence on high-cost, distribution-led strategies to drive premium growth, warning that such practices could pose risks to the industry’s medium-term sustainability despite the absence of immediate systemic threats.

In its latest financial stability report (FSR), RBI says that while the insurance sector remains broadly stable and well-capitalised, surface-level resilience is masking deeper structural pressures. Chief among these is the persistence of a high expense structure, particularly elevated acquisition and distribution costs, which are increasingly shaping business growth rather than improvements in operational efficiency.

“A primary pressure is the persistence of a high expense structure, particularly the acquisition costs. Premium growth has been increasingly driven by high-cost distribution-led strategies rather than operating efficiency. In the non-life sector, commission growth has significantly outpaced other operating expenses. While in the life sector, frontloaded acquisition costs limited the extent to which scale efficiencies are passed on to policyholders. Furthermore, expected benefits from digitisation remain unrealised,” the central bank noted in the report’s section on the insurance sector.

According to RBI, insurers have relied heavily on commissions, incentives and other distribution-related expenses to expand premium volumes, especially in a competitive market environment. While this approach has supported headline growth numbers, it has also compressed margins and raised concerns about the long-term viability of such business models, particularly if growth slows or claims experience worsens.

The report says that these structural pressures do not pose near-term systemic risks to financial stability. However, RBI cautioned that sustained reliance on cost-intensive distribution channels could weigh on insurers’ profitability, capital buffers and their ability to expand coverage in a sustainable manner over the medium term.

The central bank also flagged that high expense ratios could limit insurers’ capacity to absorb shocks, especially during periods of market volatility or adverse claims cycles. This is particularly relevant for segments where competition has intensified and pricing discipline has weakened, the RBI said.

In its assessment, RBI underscored the need for insurers to rebalance their growth strategies by improving operational efficiency, leveraging technology and strengthening underwriting discipline, rather than relying predominantly on expensive acquisition-driven expansion. The report suggested that a shift towards more efficient distribution models could help improve profitability while supporting broader insurance penetration.

RBI’s observations come at a time when the insurance sector has been reporting steady premium growth, supported by aggressive sales strategies and widening distribution networks. However, the regulator cautioned that headline growth should not be viewed in isolation from the underlying cost structures that support it.

While maintaining that the sector remains resilient for now, RBI says the emerging pressures highlight the importance of closer monitoring of expense ratios, acquisition costs and business sustainability, especially as insurers seek to expand coverage in a competitive and evolving market landscape.

The central bank added that addressing these structural issues would be critical to ensuring that growth in the insurance sector remains durable, inclusive and aligned with broader financial stability objectives.

Comments